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11/4/15

Our pretend geologist, Louis Lobito Little Wolf James of Casey Research, put more of his own cash in Bank's Island Gold (BOZ.v) than any other stock (by his own words, see below) but more importantly for us out here, it's the one he pumped without stopping for years on end. When it didn't go according to plan in early 2014 he published the following piece for his poor long-suffering suckers' readers' consideration and got them buying in even more.

As for how BOZ.v turned out, he waited until the stock had dropped to 5c and then decided to sell. And now he never mentions it any more, preferring to reminisce about buying SLW in early 2009.

It's now a three cent stock, down 93% on that chart. His "largest position" is probably not that any longer, not in cash terms at least.

Here's what Lobito sent to his top-level "investment alert" premium service clients on March 27th 2014, once again (and similarly to his stupidities on Rubicon(RMX.yo) (RBY) this year) AFTER he'd visited the project site. He seems to think that taking photos at a mine is a hallmark of expertise. My thanks to A. Reader for sending it in yesterday (a person who was a subscriber in Casey Research before seeing the light, sadly having lost a whole crapload of money first):

CIA #540: BOZ—Pictures Worth $1,000 Words

03-27-2014

Dear Speculators,

It
was the right way to play the odds at the time, but given subsequent
price action, it's a pity we got stopped out of our latest GLD "gold
insurance" recommendation. I won't dwell on this too much, other than to
remind readers that such volatility is normal in our sector, and it's
providing some excellent buying opportunities on picks we missed
earlier, such as our most recent pick, Roxgold. More on this next week.

Meanwhile,
I've been out kicking rocks again, and I'm writing to you from British
Columbia, where I just had a follow-up visit with the subject of many
questions lately: the Yellow Giant gold mine recently built by Banks Island Gold (BOZ.V, C$0.44, 42.9M SO, 55.9M FD, C$18.9M MCap, www.banksislandgold.com).

I'll have more details in the forthcoming issue of the International Speculator, but want to go ahead and share the gist of it with Casey Investment Alert
subscribers now: I'm convinced Banks Island Gold (affectionately known
to its 60 or so employees as BIG) is a cash cow in the making and is
deeply undervalued.

First,
however, I want to remind readers that both Doug Casey and I own shares
in Banks. Personally, it remains my largest position. If you believe
this may bias me, or my perceptions of the project, please feel free to
discount what I'm about to say or, indeed, to stop reading now. I will
not be offended. (But I'll also remind readers that as per Casey policy,
I'm not allowed to sell any of my shares until giving readers a chance
to do so first.)

Now, if a picture is worth a thousand words, let me save us all a few thousand and show you why I'm so optimistic about Banks.

The
aerial shot above shows the main mine site, where there was nothing but
moose moss last time I was on Banks Island. The whole camp was a cargo
pair of containers—now, there are roads, buildings, and a floating
residential facility to house the 30-odd people working where not so
long ago, there was naught but wolves and wind.

Above
is the nondescript villain of the day: the barren garnet
"contamination" that just happens to weigh the same as Yellow Giant's
gold-bearing pyrite. This little surprise resulted in a large amount of
garnet being included in the initial batches of gold concentrate from
Yellow Giant, reducing their grade—and causing all the other problems
we've reported on.

Next, the solution:

This
shot of Yellow Giant's dense media separation (DMS) plant, the heart of
the operation, shows a red and yellow spiral separator on the
upper-left deck. What was not clear to me before my visit, but is now,
is that this new component to the circuit already addresses the garnet
problem, even though we're still a few weeks away from the installation
of the flotation cells that will improve recoveries and concentrate
grades even more.

You
see, Banks' contract requires it to produce a concentrate roughly
grading two ounces per tonne (2.0 opt), but the garnets were diluting
the concentrate down to a bit over 1.0 opt. The spiral circuit recovers
fine material that would have been lost as waste, and it grades about
3.0 opt. This is critical, because lab tests had predicted that about
15% of the gold-bearing sulfides would be crushed to this fine size, but
the reality is closer to 50%. So, if you add the concentrate from the
spiral to the DMS concentrate contaminated with garnet, you end up with
an average above the 2.0 opt required—even without the flotation
circuit. Voilà.

Note
the second set of spirals to the lower-left. Banks plans to run its
previous tailings through that set to recover the gold from fine
material produced before the garnet problem was identified. In other
words, gold already "lost" to waste will be recovered.

This
long-hole drill rig is used to blast large amounts of ore at once,
greatly reducing the mining cost per tonne. This is one of the keys to
profitability at Yellow Giant; not only does the Bob zone currently
being mined grade over an ounce per tonne, it does so in areas over 10
meters thick in places. Currently, this can result in rock with $1
million worth of gold being broken in a single round at Bob. And while
in many vein deposits, you can only use long-hole stoping here and
there, at Yellow Giant, it's the primary method of mining.

Another
key advantage that may not be immediately evident from the photos above
is that all the plant equipment is modular, brought in on trucks, and
simply parked or planted on the ground. This required minimal surface
disturbance, minimal civil engineering, no actual plant building to be
constructed, and gives the company the flexibility to add to the
circuits, and even move them around, as needed.

This is why the whole thing cost only about $10 million to build.

Note that we do not have cash cost
figures yet; the company's accountants are working on those, and with
Banks' fiscal year ended on February 28 (conveniently after the start-up
teething pains), this first full quarter of production only started
this month. That said, the math is not too difficult to sketch out; the
mine cost $10 million, the Bob zone can produce $1 million of ore with a
single blast… and that two-tonne fine material concentrate bag in the
third picture above was mounted as I arrived on-site, and was half full
by the time I toured the plant. When Banks starts reporting financial
results from regular commercial production, I think the market will be
greatly surprised by just how much money a little mine can crank out.

As
for making this little rich mine into a BIG cash cow (sorry, pun
intended), consider that the single boulder under my elbow in this
picture has about $20,000 worth of gold in it at today's spot price.
There were several of these being hauled out of Bob while I was there,
and much more in smaller broken rock. More to the point: material like
this has been discovered by the company's exploration drilling below the
current 43-101-compliant resources at the Bob and Tell zones. The Kim
zone has also been significantly expanded, and new zones will be tested
this year. With Banks' new, larger mining permit in hand, a little more
exploration success could easily scale Yellow Giant up to a level that
could attract the interest of a larger mining company.

Banks
is not, however, looking for a takeover; management wants to generate
millions in net earnings, keep expanding Yellow Giant, and go shopping
for more high-margin projects. I believe Banks will succeed. Consider
this last photo, showing about $250,000 worth of gold in concentrates
ready for shipment—not bad for a few days' work.

I
did not have access to nonpublic data, so I can't give you any
financial figures I'd care to defend. Based on what I saw, however, I
can say that Yellow Giant is already bigger and better than anticipated,
and it was built at an extremely low cost and is operating at what has
to be one of the lowest costs per ounce I've seen. While other companies
are reporting losses and write-downs, I now expect Banks to report net
income in its first quarter of commercial production and growth soon
thereafter.

Yellow
Giant's profitability may not become fully apparent (or may not be
believed) until the company's audited financials come out, but I expect
the reality to become increasingly apparent with each press release
throughout this year—perhaps starting with the next one.

I
can't guarantee what gold will be doing in the nearest term, but Banks
Island shares are selling cheaper than they have been since right after
IPO, and back then, the company had only an idea, while now it has cash
flow. This undervaluation won't last, and I see very near-term Push in
this story.

So
I'm reiterating my renewed Buy recommendation. Whatever happens in the
near term, these shares are a great buy, whether for a first tranche or a
second.

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